fbpx
Back to all news

Kerosene subsidies – a hidden cost

Yesterday, the Guardian reported the staggering cost of fossil fuel subsidies following a report from the IMF: an estimated $5.3 trillion or 6.5% of global GDP.

This eye-watering amount is almost too huge to comprehend but the human cost of subsidies is something we hear about each day.

The cost of ‘negative externalities’

Much of the subsidy amount cited by the IMF results from the omission of ‘negative externalities’ from fossil fuel costs, such as those caused by the health impacts of pollution and the impact on the environment. The true cost of these subsidies, the IMF states, should include things like the effect of air pollution on a community, such as increased medical costs or a reduction in productivity.

Detractors might suggest that these subsidies are not ‘real’ or ‘do not count’ – but our experience show us that for many of the world’s poorest – they are very real indeed.

Smoke from a kerosene lamp, used by millions of families across Africa to light their homes, contributes to indoor air pollution that kills over 4 million each year. As one mother from Zambia told us: “I used to find soot in the noses of my children every morning when they slept in a room with kerosene, and they would complain of chest pains.” Kerosene lamps are toxic, expensive and leave families at constant risk of fire and injury. Yet, even in 2015, millions of African families have no other choice of fuel to light their home – when cheaper, safer solutions exist, such as the simple solar light.

Solar lights not only improve health; they improve educational results, and boost enterprise and productivity. Perhaps most importantly, solar lights save rural African families up to 20% of their annual income, which is usually then spent on better food, school books or fees or to develop their businesses.

The direct cost of kerosene subsies

Late last year, a UNEP report ‘Lifting the Darkness on the Price of Light’ highlighted that across the 15 countries in the Economic Community of West African States alone, $4 billion is also spent each year subsidising kerosene for lighting – an issue raised by SolarAid’s Head of Policy at the UN Sustainable Energy for All (SE4All) forum this week.

While the subsidy of kerosene has historically helped those living under the poverty line to afford fuel for lighting (and rapid removal could disproportionately impact the poorest), there is a growing concern that the subsidisation of kerosene is now too blunt an instrument and is distorting the off-grid solar market in unelectrified areas, holding back the transition to cheaper and cleaner sources of energy. As the UNEP report highlighted:

“Current levels of subsidies have a profound downward effect on the cost of light to consumers. While this may have near-term benefits for poverty alleviation, it can effectively halve the economic value of switching to technologies that would even further reduce lighting operating costs. For perspective, in a single year the level of subsidy awarded to the fuel burned by a single lamp can be on par with the price of purchasing a replacement solar lantern, which are available at costs of US$20 or less.”

In some countries the cost of subsidies are particularly pronounced. In Nigeria, for example, “kerosene subsidies alone amount to more than those for security, critical infrastructure, human capital development, and land and food security combined”.

The potential of solar solutions

Given the huge benefits brought by a switch from kerosene to solar it is an issue that deserves urgent attention, more research and more policy review. The solar lights shining in Africa this year are already saving base of the pyramid consumers an estimated £500 million and enabling billions of hours of study and productive time. In respect of health and education, the impact of a rapid switch to solar in rural areas could be extraordinary. It would also create £billions in individual savings – and could do the same for governments.

With world leaders and energy access practitioners gathered in New York for SE4All – and over a billion people living without electricity – it is time we recognised the way in which subsidies distort markets and the more than real potential that a solar future can bring.